Blemain Finance Ltd v E.Surv Ltd

A valuer may be negligent both because the valuation is outside the reasonable margin and because the valuation exercise was performed incompetently. A valuation outside the bracket is necessary, but not by itself sufficient, to establish negligence. The court must assess the valuer’s methodology and the evidence in the particular case.

For contributory negligence, the claimant’s conduct must have caused the loss. In lending cases, the relevant standard is that of the reasonably competent second charge lender, without an additional qualification such as “prime status”. The defendant must show that no reasonably competent lender would have made the loan.

Blemain Finance Ltd lent £250,000 secured by a second charge over a property after relying on an E.Surv valuation of £3.4 million. The borrowers later defaulted, the property was repossessed and sold for about £2 million, leaving Blemain with an agreed loss of £301,194.89.

The claim alleged negligent valuation. E.Surv also alleged that Blemain had contributed to its loss by lending outside prudent lending criteria, particularly in relation to loan-to-value, debt information and affordability. The central issues were whether the valuation was negligent, whether it fell within a reasonable valuation bracket, and whether any criticism of Blemain’s lending decision was causative of the loss.

1. Negligent valuation. E.Surv owed a duty to exercise the standard expected of a reasonable valuer of ordinary competence and experience. The valuation report gave no proper explanation for the figure of £3.4 million. The selected comparables were inadequately analysed, included an erroneous sale price, covered too wide a range and were not shown to be inferior in location. The valuation exercise was therefore negligently performed.
2. Margin or bracket. The court considered the authorities, including Merivale Moore PLC v Strutton Parker (a firm) [1999] Lloyd’s LR 734, and held that falling outside a reasonable bracket was necessary but not sufficient for liability. The appropriate valuation was £2.8 million. The proper margin was 10 per cent, producing an upper limit of £3.08 million. The £3.4 million valuation was outside that range and was one to which no reasonable valuer could have arrived.
3. Causation. Blemain made the loan in consequence of the negligent valuation. It would not have done so if it had known that the property was worth no more than £3.08 million.
4. Contributory negligence. The applicable standard was that of a reasonably competent second charge lender. The allegations failed at the causation stage because E.Surv’s expert could say only that a reasonable lender might have refused the loan, not that no reasonably competent lender would have made it. The individual allegations also failed. A 73 per cent loan-to-value ratio was reasonable in the circumstances. The debt information warranted further questions but did not make the loan unreasonable. The income evidence could properly be relied upon, although the other mortgages should have been included in the affordability calculation. Even on a total debt-to-income calculation, the loan would have been made.
5. The claim succeeded on liability. The damages were agreed at £301,194.89. The parties were directed to agree interest and draw up the order; costs were not determined in the judgment.

First-instance decision. The judgment records no appeal or earlier decision in this litigation.